Stockmarket: Feels like heaven

Puneet Jain/ Times News Network

The Indian stock market added yet another chapter to its records book last week when benchmark indices closed at their all-time highs, demolishing the reputations of many analysts and research houses on its way up.

While the statisticians predicted a ‘correction’ based on historical numbers and trends, the real artistes foresaw a combination of strong domestic liquidity and low floating stock to read the market’s mood. What followed is sheer magic in terms of the rise of the indices.

However, small investors are still waiting for relief efforts to reach them as much of their wealth is stuck in mid-cap and small-cap stocks that have fallen sharply since the market touched its last peak.

While recovery has already started in many of the ‘frontline’ mid-cap stocks, help is on the way for hundreds of other stocks that had been condemned to oblivion by Sebi’s action in transferring them to the trade-for-trade segment and imposing 5% circuit limits on their price movements.

The regulator now appears to be in a mood to relent and we might see many more stocks being moved back to the normal trading segment in the capital market. This should improve trading liquidity in these stocks and allow valuations to improve.

The historic bull run in India is amply supported by the massive boom in . But the India tstory is somewhat different. The rise of domestic investors in equity market has been truly amazing over the past few months

Domestic money’s power in the stock market was proven by the stunning net inflow of over Rs 1,500 crore to the equity mutual fund schemes in October when stocks were tanking and everyone expected redemption pressures to mount.

The strong domestic inflows cushioned the fall and allowed jumpy FIIs to exit the market. Net sales by FIIs in October neared Rs 4,000 crore. These were almost matched by the purchases by domestic funds and therein lies the foundation for the current rally

As international markets rose sharply in November, these FIIs were forced to come back to the best performing market in the world, driving the prices higher.

Going forward, we expect the markets to remain bullish for the next few weeks. The rally would be supported by surge in global liquidity. However, the longevity of the rally would depend on growth in domestic fund flows to equities.Investors have many expectations from the forthcoming budget and some of these may be met by the finance minister.

Another major event for the market would be the final move towards demerger of Reliance Industries’ investments in ADAE group companies. There are many questions and great apprehension over the manner in which this would be given effect to in the RIL F&O contracts.

If the stock exchanges clarify the issue of price adjustment in RIL futures contract post demerger they would do great service to millions of investors who have invested in the company via the F&O route and stocks. The sooner this is clarified the better it would be for smooth functioning of the market when the big event finally arrives.